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Fine young cannibals

E-commerce analysts have long speculated that online shopping would eat up retail storefronts, and now we have some evidence of that possibility.

Online shopping is turning cannibal.

E-commerce analysts have long speculated that online shopping would eat up retail storefronts, and now we have some evidence of that possibility.

A research outfit called Cyber Dialogue recently found that 19 percent of online shoppers are spending less time in the neighborhood mall and 14 percent are increasingly shunning that incessant stream of catalogs in the mailbox.

That should serve as a wake-up call to mainstream retailers who think they can blithely ignore the Net, even though the impact on brick-and-mortar merchants has so far been negligible.

Nor is the Cyber Dialogue data the only recent warning to retailers and services firms that the Internet will erode their revenues unless they wise up. Microsoft said last week that its Expedia travel service booked $12 million in January. That easily puts Microsoft among the top 50 travel agencies in the United States, joining online rival Preview Travel, which is doing about $3 million a week itself.

In a low-margin business like travel, losing even a little revenue can hit profits hard. Some alarmists are predicting that a noticeable fraction of hometown mom-and-pop travel agencies will disappear this year in the squeeze between Net travel brokers and airlines, which are cutting travel agents' commissions as they attempt to sell more tickets directly.

The most prominent example of how the Internet is changing retail was the January 28 announcement by Egghead Software (EGGS) that it's closing 80 stores and becoming an Internet-only outlet.

Egghead's move can't be blamed solely on the Internet, of course. Its smallish retail stores couldn't compete with the computer superstores. Faced with the choice of leasing bigger spaces or moving to cyberspace, it chose the latter. Even the scrambled executive brains at Egghead--which moved its headquarters from Seattle to Spokane, Washington, a few years ago in a cost-cutting move--understood that cyberspace is cheaper than real estate.

I've been skeptical about whether Internet commerce would really hurt physical stores, as San Francisco real estate broker/lawyer Mark Borsuk predicts it will. My argument: U.S. retailers continue to sell more, so online sales might slow revenue growth, but they aren't likely to grab enough business to hurt your local Gap or the corner A&P.

Borsuk has been preaching for months that online sales will affect retailers, and soon thereafter, the landlords and investors who lease to them.

"Egghead's move to a pure Internet retailing format is future shock," hesays. "Some retail landlords are in for a wild ride as merchants seek to integrate an online presence with their store and catalog businesses."

Retailers and their landlords are shrugging off online shopping as a phenomenon that is no more dangerous to them than catalog sales, which never hit store-based retailers. But catalog and online shopping are fundamentally different, Borsuk argues.

"Online shopping creates far more value for users than simply making the purchase. Amazon.com offers customer-authored book reviews and alerts readers to books of interest by email," he says. "The sense of community implicit in cyberspace has no catalog analog."

Speaking of Amazon, the online bookseller sold $66 million in books in 1997's final quarter. Internet auctioneer Onsale (ONSL) did $33 million in the same three months. That's almost $100 million in revenue that didn't go to a cataloger or someone with a physical storefront.